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53Phil.489

[G.R.No.31057,September07,1929]
ADRIANOARBESETAL.,PLAINTIFFSANDAPPELLEES,VS.
VICENTEPOLISTICOETAL.,DEFENDANTSANDAPPELLANTS.
DECISION
VILLAMOR,J.:
This is an action to bring about a liquidation of the funds and property of the
association called "Turnuhan Polistico & Co." The plaintiffs were members or
shareholders, and the defendants were designated as presidenttreasurer,
directorsandsecretaryofsaidassociation.
Itiswelltorememberthatthiscaseisnowbroughtbeforetheconsiderationof
this court for the second time. The first time was when the same plaintiffs
appealed from the order of the court below sustaining the defendants'
demurrer, and requiring the former to amend their complaint within a certain
period,soastoincludeallthemembersof"TurnuhanPolistico&Co.,"eitheras
plaintiffs or as defendants. This court held then that in an action against the
officers of a voluntary association to wind up its affairs and to enforce an
accountingformoneyandpropertyintheirpossession,itisnotnecessarythat
all members of the association be made parties to the action. (Borlasa vs.
Polistico,47Phil.,345.)Thecasehavingbeenremandedtothecourtoforigin,
both parties amended, respectively, their complaint and their answer, and by
agreement of the parties, the court appointed Amadeo R. Quintos, of the
InsularAuditor'sOffice,commissionertoexamineallthebooks,documentsand
accounts of "Turnuhan Polistico & Co.," and to receive whatever evidence the
partiesmightdesiretopresent.
Thecommissionerrenderedhisreport,whichisattachedtotherecord,withthe
followingresume:

Income:
Members'shares
Creditspaid
Interestreceived
Miscellaneous

Expenses:
Premiumstomembers
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P97,263.70
6,196.55
4,569.45
1,891.00
P109,620.70

68,146.25
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Loansonrealestatesecurity
Loansonpromissorynotes
Salaries
Miscellaneous

Cashonhand

9,827.00
4,258.55
1,095.00
1,686.10
85,012.90
24,607.80

The defendants objected to the commissioner's report, but the trial court,
having examined the reasons for the objection, found the same sufficiently
explainedinthereportandtheevidence,andacceptingit,renderedjudgment,
holding that the association 'Turnuhan Polistico & Co.*' is unlawful, and
sentencing the defendants jointly and severally to return the amount of
P24,607.80, as well as the documents showing the uncollected credits of the
association,totheplaintiffsinthiscase,andtotherestofthemembersofsaid
associationrepresentedbysaidplaintiffs,withcostsagainstthedefendants.
The defendants assigned several errors as grounds for their appeal, but we
believetheycanallbereducedtotwopoints,towit(1)Thatnotallpersons
having an interest in this association are included as plaintiffs or defendants
(2)thattheobjectiontothecommissioner'sreportshouldhavebeenadmitted
bythecourtbelow.
As to the first point, the decision in the case of Borlasa vs. Polistico, supra,
mustbefollowed.
With regard to the second point, despite the praiseworthy efforts of the
attorney for the defendants, we are of opinion that, the trial court having
examined all the evidence touching the grounds for the objection and having
found that they had been explained away in the commissioner's report, the
conclusion reached by the court below, accepting and adopting the findings of
factcontainedinsaidreport,andespeciallythosereferringtothedispositionof
theassociation'smoney,shouldnotbedisturbed.
In Tan Diangseng Tan Siu Pic vs. Echauz Tan Siuco (5 Phil., 516), it was held
that the findings of fact made by a referee appointed under the provisions of
section 135 of the Code of Civil Procedure stand upon the same basis, when
approvedbythecourt,asfindingsmadebythejudgehimself.AndinKriedtvs.
E.C.McCullough&Co.(37Phil.,474),thecourtheld:"Undersection140ofthe
CodeofCivilProcedureitismadethedutyofthecourttorenderjudgmentin
accordancewiththereportoftherefereeunlessthecourtshallforcauseshown
set aside the report or recommit it to the referee. This provision places upon
thelitigantpartiesthedutyofdiscoveringandexhibitingtothecourtanyerror
that may be contained therein." The appellants stated the grounds for their
objection. The trial court examined the evidence and the commissioner's
report, and accepted the findings of fact made in the report. We find no
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convincing argument in the appellants' brief to justify a reversal of the trial

court'sconclusionadmittingthecommissioner'sfindings.
Thereisnoquestionthat"TurnuhanPolistico&Co."isanunlawfulpartnership
(U.S.vs.Baguio,39Phil.,962),buttheappellantsallegethatbecauseitisso,
some charitable institution to whom the partnership funds may be ordered to
beturnedover,shouldbeincludedasapartydefendant.Theappellantsreferto
article1666oftheCivilCode,whichprovides:
"A partnership must have a lawful object, and must be established
forthecommonbenefitofthepartners.
"When the dissolution of an unlawful partnership is decreed, the
profitsshallbegiventothecharitableinstitutionsofthedomicileof
thepartnership,or,indefaultofsuch,tothoseoftheprovince."
Appellants' contention on this point is untenable. According to said article, no
charitable institution is a necessary party in the present case for the
determinationoftherightsoftheparties.Theactionwhichmayarisefromsaid
article, in the case of an unlawful partnership, is that for the recovery of the
amountspaidinbythemembersfromthoseinchargeoftheadministrationof
said partnership, and it is not necessary for the said partners to base their
actionontheexistenceofthepartnership,butonthefactofhavingcontributed
somemoneytothepartnershipcapital.Andhence,thecharitableinstitutionsof
thedomicileofthepartnership,andindefaultthereof,thoseoftheprovinceare
notnecessarypartiesinthiscase.Thearticlecitedabovepermitsnoactionfor
thepurposeofobtainingtheearningsmadebytheunlawfulpartnership,during
itsexistenceasaresultofthebusinessinwhichitwasengaged,because,for
that purpose, as Manresa remarks, the partner will have to base his action
upon the partnership contract, which is null and without legal existence by
reason of its unlawful object and it is selfevident that what does not exist
cannot be a cause of action. Hence, paragraph 2 of the same article provides
that when the dissolution of an unlawful partnership is decreed, the profits
cannot inure to the benefit of the partners, but must be given to some
charitableinstitution.
We deem it pertinent to quote Manresa's commentaries on article 1666 at
length,asaclearexplanationofthescopeandspiritoftheprovisionoftheCivil
Code with which we are concerned. Commenting on said article, Manresa,
amongotherthingssays:
"When the subscriptions of the members have been paid to the
management of the partnership, and employed by the latter in
transactionsconsistentwiththepurposesofthepartnershipmaythe
former demand the return or reimbursement thereof from the
manageroradministratorwithholdingthem?

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"Apropog of this, it is asserted: If the partnership has had no valid

existence, if it is considered juridically nonexistent, the contract
entered into can have no legal effect and in that case, how can it
give rise to an action in favor of the partners to judicially demand
from the manager or administrator of the partnership capital, each
one'scontribution?
"TheauthorsdiscussthispointatgreatlengthbutRiccidecidesthe
matterquiteclearly,dispellingalldoubtsthereon.Heholdsthatthe
partnerwholimitshimselftodemandingonlytheamountcontributed
byhimneednotresorttothepartnershipcontractonwhichtobase
his claim or action. And, he adds in explanation, that the partner
makes his contribution, which passes to the managing partner for
the purpose of carrying on the business or industry which is the
object of the partnership or, in other words, to breathe the breath
of life into a partnership contract with an object forbidden by the
law.Andassaidcontractdoesnotexistintheeyesofthelaw,the
purpose for which the contribution was made has not come into
existence, and the administrator of the partnership holding said
contribution retains what belongs to others, without any
considerationforwhichreasonheisboundtoreturnit,andhewho
haspaidinhisshareisentitledtorecoverit.
"Butthisisnotthecasewithregardtoprofitsearnedinthecourse
of the partnership, because they do not constitute or represent the
partner'scontributionbutaretheresultoftheindustry,business,or
speculation,whichistheobjectofthepartnershipand,therefore,in
order to demand the proportional part of said profits, the partner
wouldhavetobasehisactiononthecontract,whichisnullandvoid,
sincethispartitionordistributionoftheprofitsisoneofthejuridical
effectsthereof.Wherefore,consideringthiscontractasnonexistent,
by reason of its illicit object, it cannot give rise to the necessary
action, which must be the basis of the judicial complaint.
Furthermore,itwouldbeimmoralandunjustforthelawtopermita
profitfromanindustryprohibitedbyit.
"Hence,thedistinctionmadeinthesecondparagraphofthisarticle
of our Code, providing that the profits obtained by unlawful means
shall not enrich the partners, but shall, upon the dissolution of the
partnership,begiventothecharitableinstitutionsofthedomicileof
thepartnership,or,indefaultofsuch,tothoseoftheprovince.
"This is a new rule, unprecedented in our law, introduced to supply
anobviousdeficiencyoftheformerlaw,whichdidnotprescribethe
purpose to which those profits denied to the partners were to be
applied,norstatewhatwastobedonewiththem.
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"The profits are so applied, and not the individual contributions,

because this would be an excessive and unjust sanction for, as we
have seen, there is no reason, in such a case, for depriving the
partner of the portion of the capital that he contributed, the
circumstancesofthetwocasesbeingentirelydifferent.
"Our Code does not state whether, upon the dissolution of the
unlawfulpartnership,theamountscontributedaretobereturnedto
thepartners,becauseitonlydealswiththedispositionoftheprofits
but the fact that said contributions are not included in the disposal
prescribed for said profits, shows that in consequence of said
exclusion,thegeneralrulesoflawmustbefollowed,andhence,the
partners must be reimbursed the amount of their respective
contributions.Anyothersolutionwouldbeimmoral,andthelawwill
notconsenttothelatterremaininginthepossessionofthemanager
oradministratorwhohasrefusedtoreturnthem,bydenyingtothe
partners the action to demand them." (Manresa, Commentaries on
theSpanishCivilCode,vol.XI,pp.262264.)
Thejudgmentappealedfrom,beinginaccordancewithlaw,shouldbe,asitis
hereby,affirmedwithcostsagainsttheappellantsprovided,however,thatthe
defendantsshallpaythelegalinterestonthesumofP24,607.80fromthedate
of the decision of the court, and provided, further, that the defendants shall
deposit these sums of money and other documents evidencing uncollected
creditsintheofficeoftheclerkofthetrialcourt,inorderthatsaidcourtmay
distribute them among the members of said association, upon being duly
identifiedinthemanneritmaydeemproper.Soordered,
Avancea,C.J.,Johnson,Street,Johns,Romualdez,andVillaReal,JJ.,concur.

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